US stock ownership: Fact-checking Michael Lewis
Before the flash crash, 67 percent of U.S. households owned stocks; by the end of 2013, only 52 percent did: the fantastic post-crisis bull market was noteworthy for how many Americans elected not to participate in it.
–Michael Lewis, Flash Boys, pp 200-201
Is this true?
There are four issues: (1) applying the percentages to “households”; (2) the percentages themselves; (3) the implication that the May 2010 flash crash caused a massive drop on stock ownership (rather than, say, the financial crisis of 2008-9); (4) the implication that the drop in stock ownership was elective.
(1) is relatively minor.
The 52% Lewis references comes from a Gallup poll result that refers to “stock ownership among US adults”. That is, individuals, not households, although Gallup does include holding stocks “jointly with a spouse” as a “yes”.
Gallup doesn’t appear to track a household number, but the Economic Policy Institute cites a study that does (Wolff 2012). The share of households that own stocks is lower and less volatile than the share of individuals who do: it peaked at 51.9% in 2001 and was at 46.9% in 2010. Here’s the chart going back to 1989. The decade between 2000-2010 is marginally down, but in practical terms, essentially flat.
(2) Looking at the Gallup poll itself, Lewis gets the results a bit tangled up.
He is right that 52% of US adults owned stocks in 2013.
But, per Gallup, 56% of US adults owned stocks in 2010, not 67%.
In fact, this poll hasn’t ever produced a “67% of US adults own stock” result. This data series peaked at 65% in May 2007. Here’s the Gallup chart:
(3) The Gallup chart above doesn’t indicate any trend emerging or accelerating in 2010.
What you see is that US stock ownership plugs along in the low 60s in the first half of the aughts, spikes in 2007, drops very rapidly in 2008-9, and then continues to decline at a slower but steady rate.
The main driver, therefore, would seem to be the financial crisis and the subsequent recession, not HFT.
(4) Here’s Catherine Rampell:
Lydia Saad of Gallup suggests that Americans’ withdrawal from the stock market may be “more a function of their ability to buy it, than of whether its value is soaring,” and notes that high unemployment seems to correlate with low stock ownership rates.
It’s true that many Americans mistrust the stock market — but it’s also true that most of America hadn’t even heard of HFT before Lewis’s book came out. If they mistrust the stock market, it’s because of the 2008-9 crash, not because of HFT. And if they’re not investing in the stock market, that’s probably just because they don’t have any money to invest in the stock market, because their savings were wiped out in the crash. And not because they’ve elected to stay on the sidelines. After all, standard investment advice is to build up a cushion of roughly 6 months’ worth of expenses, in cash, before you invest any money in stocks. And the percentage of US households with 6 months of expenses in cash is much lower than 52%.